Credit Suisse targets structured products reboot

LONDON, Nov 30 (IFR) - Credit Suisse wants to turnaround its underperforming structured products business by selling more of its instruments to wealth management clients, as part of plans to improve profits in its global markets division.

“It has been a slow process,” said chief executive Tidjane Thiam at its annual investor day. “We have brought in Mike Stewart from UBS and he is going to drive this strategy of penetrating wealth management clients.”

Stewart was appointed head of equities a year ago, joining from UBS. The division has struggled in recent years, but is a key part of Thiam’s wider overhaul of the group since he became CEO in June 2015.

He said investment banking still faced difficulties. “Across the whole sector investment banking revenues have been flat. There is overcapacity with too much capital chasing too little business. People are price-takers not price-makers,” he said.

New rules forcing banks to hold more capital have hurt returns, and Thiam said average investment banking returns on capital employed were now around 7% to 8%, half the 14% level seen a decade ago.

The bank said weak trading conditions seen in its markets division during the third quarter had continued in the current period as volatility remained historically low and spreads in the high yield market had widened.

”This weighs negatively on the performance of both GM [global markets] and APAC [Asia Pacific] markets,” said the bank.

It plans to grow GM revenues by US$300m, or 5.3%, to US$6bn next year, and chop costs by US$200m, or 4%, to US$4.8bn. That would allow it to meet a wider target of returns on regulatory capital of between 10% and 15%.

“We want to keep businesses connected to wealth management and increase returns and rightsize them. This approach has worked so far in challenging markets,” Thiam said.

COST CUTS

The bank was more positive on its investment banking and capital markets business, saying its pipeline was solid.

“We expect our backlog of transactions to be completed subject to constructive markets,” it said.

Thiam said his plan to focus on equity capital markets and M&A was starting to pay off, and the bank had been a lead IPO bookrunner in 2017. He said the maintenance of its top position in leveraged finance also helped its investment banking division.

Thiam unveiled a new platform, called International Trading Solutions, which aims to bring together its global markets, international wealth management and Swiss universal bank.

Thiam intends to continue squeezing costs across the bank and wants to cut a further SFr1bn over the next year.

“The group aims to operate with a total cost base of between SFr16.5bn and SFr17bn in 2019 and 2020, subject to market conditions and investment opportunities within this range,” said the bank. It said this would lead to a return on tangible equity of 10% to 11% in 2019.

Thiam did not comment on the demands of activist investor RBR, which in October called for the bank to spin off its investment banking activities. (Reporting by Christopher Spink)